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Oil prices drop on eve of US jobs data

Oil prices fell on profit-taking Thursday, the eve of key US jobs data and after the market had won support from a Federal Reserve monetary policy announcement as well as unrest in the Middle East region.

Brent North Sea crude for delivery in March dipped 10 cents to $114.80 a barrel in London midday trading. The contract had hit a three-month high at $115.25 in Asian deals.

New York's main contract, light sweet crude for March, meanwhile dropped 25 cents to $97.69 a barrel after reaching a four-month peak at $98.24 on Wednesday.

"The US Fed's confirmation of its intention to continue its ultra-loose monetary policy is likely to give further buoyancy to oil prices, especially since no end to the bond purchasing programme was discussed," said Commerzbank analyst Carsten Fritsch.

"Neither the unexpected fourth-quarter contraction of the US economy nor the surprisingly sharp increase in US crude oil stocks last week was able to put oil prices under pressure."

The Federal Reserve on Wednesday left its ultra-loose monetary policy unchanged, saying the US economy, which is the world's biggest oil consumer, had "paused" in recent months largely due to fleeting issues like weather.

The Fed kept its record-low key interest rate between zero and 0.25 percent, as expected, to push down long-term interest rates to boost the economy.

Meanwhile despite data Wednesday showing a 0.1-percent contraction in US gross domestic product (GDP) in the fourth quarter of 2012 -- mainly because of falling public spending -- analysts said there were upbeat signs for the economy.

"The good news is the GDP report wasn't nearly as bad as it looked," DBS Bank said in a market commentary, noting that private consumption, business investment and housing all saw growth.

"All this is good, strong stuff. It's also private sector stuff and that's what's going to have to drive the recovery going forward, as the government spending component in the GDP report makes so very clear," it said.

All eyes were now on Friday's US monthly jobs data for signs of recovery in the world's biggest economy.

The market was closely following also tensions in the oil-rich Middle East, analysts said.

"Some geopolitical risk premium has crept into oil futures," said Victor Shum, managing director at IHS Purvin & Gertz in Singapore.

The Syrian army has accused Israel of launching a dawn strike targeting a military research centre in Jamraya, near Damascus on Wednesday, in a statement carried by state news agency SANA.

Analysts said the attack increased the risk that the 22-month-old conflict in Syria could spill over into neighbouring states, sparking fears of supply disruption in the Middle East, the world's biggest crude supplier.

Other analysts said global energy demand remained relatively weak with robust supplies.

"Crude oil market fundamentals are still thought to be fairly weak, with some building pressures on OPEC (Organization of the Petroleum Exporting Countries) to rein in production," said Sanjeev Gupta, who heads the Asia Pacific oil and gas practice at Ernst & Young.